Eurozone Monetary Policy September 2018


Eurozone: ECB stays the course in September

September 13, 2018

The European Central Bank (ECB) delivered no surprises at its 13 September monetary policy meeting, leaving its main interest rates unchanged and reaffirming its commitment to winding down asset purchases related to its quantitative easing (QE) program by the end of the year. Accordingly, the Bank left the refinancing rate at 0.00%, the marginal lending rate at 0.25% and deposit facility rate at minus 0.40%. In addition, the ECB emphasized its plans to halve its asset-buying program to EUR 15 billion per month in October and to wrap it up entirely at the end of December—provided that incoming data plays out as expected.

Given the bloc’s unchanged economic narrative in recent months, it came as no surprise that the main messages in ECB President Mario Draghi’s accompanying statement were virtually unchanged from the previous meeting. Draghi emphasized once again that interest rates are expected to remain at their present levels “at least through the summer of 2019” and that accommodative monetary policy is still necessary to support “gradually rising” inflation—which recently rose above the ECB’s target of close to, but below, 2.0%. Underlying price pressures, however, remained moderate. Despite headwinds, Draghi reemphasized the strength of the economy and stressed that risks to the Eurozone’s growth prospects remain “broadly balanced”.

Looking ahead, the ECB is expected to keep monetary policy conditions accommodative, proceeding slowly with a gradual normalization of monetary policy. Although the end of QE will be viewed as de facto monetary tightening, Draghi reiterated the ECB’s intentions to reinvest the principal payments from maturing securities “for an extended period of time”. Moreover, low interest rates will keep conditions accommodative for the foreseeable future.

Commenting on the ECB’s decision, Carsten Brzeski, chief economist at ING, stated that:

“In our view, the ECB will use the policy rate [rather than QE] to respond to any unexpected events, be it a growth slowdown or core inflation stubbornly sticking at around 1.0% and not accelerating. Any of these could easily delay a first rate hike farther than the end of the summer 2019. However, this is obviously still very hypothetical. For now, and until the end of 2018, the ECB will happily stay on taper autopilot.”

Eurozone Interest Rate Forecast

All our analysts expect that the refinancing rate will remain unchanged for the rest of this year at 0.00%. For 2019, our panelists see the policy rate ending the year at 0.20%.


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Eurozone Monetary Policy Chart

Euro Monetary Policy September 2018

Note: ECB Refinancing Rate in %.
Source: European Central Bank (ECB).

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